- Senate Democrats must soon clear their reconciliation bill with Senator Kyrsten Sinema.
- Manchin and Sinema have resisted Democratic efforts to enact President Biden's economic agenda.
- One proposal to tax multimillionaires has fallen out of the spending bill, Insider has learned.
Senate Democrats are inching closer to a deal with Sen. Joe Manchin of West Virginia to resurrect swaths of President Joe Biden's stalled economic agenda once known as Build Back Better. That has positioned the party to advance over GOP opposition a measure that would slash prescription drug prices, one of their chief priorities stretching back years.
However, if Democrats led by Senate Majority Leader Chuck Schumer have any hope of securing other initiatives like an extension of enhanced Affordable Care Act subsidies, their attention must soon shift to another centrist with outsized influence over the party's agenda: Sen. Kyrsten Sinema of Arizona.
Manchin and Sinema hold the power of the purse to opposite ends. While Manchin largely dictates how Democrats are spending their money, Sinema prescribes how they're raising new tax revenue to pay for new clean energy and healthcare programs.
"Her position is now is not the time to raise taxes in any way that would harm small business owners or individuals who are not super rich," John LaBombard, Sinema's former communications director, told Insider. "Senator Sinema is not somebody to announce as a position without thinking it through or has one position one day and a different position the next."
The Arizona Democrat was tight-lipped throughout talks that dragged on for much of last year, often spurning questions about her positions from Capitol Hill reporters. She preferred negotiating directly with Biden and senior White House officials on the size and scope of their economic spending plan.
At one point, Sinema nearly stormed out of an Oval Office meeting after the president spilled to other Democrats the maximum amount she wanted to spend on the economic package, as reported in the book "This Will Not Pass" by New York Times reporters Jonathan Martin and Alex Burns.
Sinema's approach last year vexed many of her Democratic colleagues and kept them guessing on what she actually wanted in their social spending and climate bill. Manchin later killed the House-approved bill in December.
LaBombard, who is now a senior vice president at the public affairs firm ROKK Solutions, said Sinema has long been sensitive to tax increases that could potentially damage the economic recovery. She's not expected to soften her position and Democrats seem to be taking it into account.
"The biggest risk for losing Sinema has always been adding tax increases that weren't part of the House BBB bill, or a change to the prescription drug negotiation stuff," Ben Ritz, director of the Center for Funding America's Future at the Progressive Policy Institute, a think tank, told Insider. "So I think the risk of it is relatively low."
Her opposition to raising tax rates on the richest Americans and large corporations led Democrats to abandon their goal of rolling back the Republican tax cuts last year. To compensate, the White House and Sinema crafted an alternate plan to levy a 5% surtax on individual annual incomes above $10 million and extra 3% on those earning $25 million or more. That would raise roughly $228 billion and affect 21,000 US households — or 0.02% of all taxpayers.
Yet Democrats continue to slimming down the tax increases within the nascent package. One Senate Democratic aide familiar with the negotiations told Insider the surtax has been knocked out of consideration. But there's still relative confidence behind the scenes that other options can still get Democrats to Manchin's reported spending ceiling of $1 trillion with half going to deficit reduction.
"It is not hard to hit a trillion dollars," the aide said, listing prescription drug reform, a 3.8% tax on net investment income applied to high-earning taxpayers with trade and business earnings, and an adjusted 15% corporate minimum tax as three revenue sources capable of raising $700 billion — well over half of what's needed.
Democrats are also betting that stepping up IRS enforcement funding will generate at least $127 billion in new revenue as well.
Still, one expert says Democrats risk exacerbating inequality in the tax system. "When we start going down this path of using backdoor tax rate increases because some politicians think that's politically more tolerable, we raise less money, increase distortions, and increase inequities treating similarly situated taxpayers differently," Steve Rosenthal, a senior fellow at the Tax Policy Center, told Insider. "So that's bad for the tax system."
The Arizona Democrat has said very little publicly about reviving the party's climate and tax agenda. In April, she pledged not to switch up her demands during a Arizona Chamber of Commerce event.
Hannah Hurley, a spokesperson for Sinema, pointed Insider to a March statement on Biden's narrower agenda. "Any new, narrow proposal — including deficit reduction — already has enough tax reform options to pay for it," Hurley said. "These reforms are supported by the White House, target tax avoidance, and ensure corporations pay taxes, while not increasing costs on small businesses or everyday Americans already hurting from inflation."
Senate Minority Leader Mitch McConnell threw another wrench into the party's efforts to revive the smaller party-line bill on Thursday, threatening to hold a bipartisan bill meant to strengthen US competitiveness with China hostage. It appeared a serious effort to force Democrats into walking away from resuscitating their party-line bill.
Manchin hasn't commented publicly. But McConnell's threat may backfire with Sinema, who objected to last year's progressive blockade of the infrastructure law until the Senate approved the larger bill carrying key items of their agenda.
"Senator Sinema is not someone who will engage in political gamesmanship by folks who are holding different pieces of legislation, metaphorically, hostage to other pieces of legislation. That is antithetical to how she views governing," LaBombard said. "By playing games with pieces of legislation, that is just not a strategy that works with her."